NBN mandate becomes cost saviour

Summary:As telecoms reform legislation is tabled and Stephen Conroy takes centre stage, some have read Brisbane's threat of competitive fibre as a danger to the NBN. But if he can mandate interoperability and access requirements, Brisbane's decision could actually slash the cost of the NBN and boost much-vaunted private investment. Here's how.

Brisbane Lord Mayor Campbell Newman's decision to push fibre through the city's sewers has been hailed by some as a victory for opponents that argue the private sector will take care of our broadband needs, and that Labor's NBN will overbuild existing fibre. Yet it is also a resounding victory for Stephen Conroy — signalling the start of the vaunted "Hayman solution" private-sector investment model that could bring down the NBN's cost and shorten its roll-out time frame dramatically.

Brisbane's sewers are a logical conduit for fibre: assuming that flooding isn't a problem, they'll allow i3 Asia Pacific to reach each of an estimated 500,000 premises around the city without having to try negotiating access to Telstra's ducts. The company's willingness to invest in such a network (and Brisbane City Council's willingness to provide access for it to happen) is an important milestone, since it suggests that the looming threat of the NBN has not, in fact, killed private-sector investment as many had feared.

Yet i3 is not looking outside Brisbane City Council's boundaries. This decision reflects exactly why the NBN is so important as an infrastructure project: commercially-defined boundaries for service roll-outs will always ignore rural areas, which are the ones in most dire need of infrastructure enhancement. Even the fibre-phobic Liberals have admitted government intervention is important in these areas, and NBN Co's post-election prioritisation of rural areas (presumably to be reflected in the company's soon-to-be-released business plan) reflects this reality.

Brisbane's decision, like that last week from Victorian Liberals who say they're quite happy to spend the Labor Government's money, changes the game dramatically. Those who question the NBN's technical merits are gradually ceding ground to the much more desirable position where their argument is based on financial issues rather than FUD (although the exchanges in this week's Senate Estimates hearing suggested FUD isn't entirely dead in Canberra). And if the Hayman solution can be managed appropriately, they may have to concede the NBN is workable after all.

The reason, of course, is simple: if i3 is rolling out fibre in Brisbane, NBN Co doesn't have to — as long as i3 makes its network technically interoperable with the NBN, and allows other companies to use its own infrastructure. Such powers may well emerge as Conroy heads to parliament this week to push his telecoms reform package — and if he successfully imposes those restrictions, he could quite reasonably argue that the NBN's business case has never been stronger.

After all, if private-sector interests continue rolling out fibre, they risk stranding their customers on islands ripe with connectivity but with limited choice, as well as suffering untold interoperability issues at the boundaries between their networks and the NBN. They also wear loads of potential risk if those customers decide to go somewhere else. And, in an era where global capital expenditure by service providers dropped 8 per cent last year and an additional 4 per cent this year, change seems both good and necessary: "Telcos and vendors alike must be picky and open to reinventing business models as industry dynamics evolve towards 2020," Ovum recently warned.

Conroy heads to parliament this week to push his telecoms reform package — and if he successfully imposes those restrictions, he could quite reasonably argue that the NBN's business case has never been stronger.

Inaction is hardly a better option: without regulatory change, Telstra's South Brisbane copper access network replacement project (and similar upgrades) will leave 18,000 or so customers with no choice of service provider.

Yet it's not all wine and roses for NBN Co: sacrificing the potential revenues for servicing population-heavy capital cities would weigh heavily on its business case and compromise existing cross-subsidy strategies. There would be less network to build, but fewer people using it.

Furthermore, by imposing controls on the private sector, the government runs the real risk of diluting the value of its Telstra customer buyback: to where will those customers go, pray tell, if a Hayman approach means NBN Co has no network to move them onto in many city areas? This could not only see NBN Co establishing a network of approved retail service providers (RSPs), but paying Telstra to provide them with customers. The implication is that NBN Co would have to set some sort of deadline for private-sector investment so it can clarify, early on, just how much geographical area the private sector is going to cover and how much slack Mike Quigley will have to move in and pick up.

Consider also the implications of the government buying customers from Optus. That's a slippery slope that has already had other companies speculating as to whether they could sell out to NBN Co: "We are not going to just walk away from our investment," TransACT general manager Andre Koot is quoted as saying. "We either have to make our networks attractive enough for the NBN Co to buy them, or we compete. NBN is pretty earth-shattering for us."

The Hayman option would give TransACT, and the many other existing capital-city fibre operators, a new option — and raise the potential for more complementary, co-operative use of existing assets. Why, for example, couldn't NBN Co leverage the "F" part of Optus' HFC network and focus on replacing customer coax connections with fibre — or it could even leave them alone for now in exchange for an Optus arrangement to allow RSPs to resell access to its network? Heck, the Victorian Government has already indicated that it wants to work with NBN Co to maximise coverage, as quickly as possible, by linking up its own existing fibre to whatever NBN Co rolls out.

Coverage, rather than long-running practices of customer lock-in based on geography, is the priority here; if carriers can work together, they can strengthen their own business cases, avoid mothballing years of investment and ensure their role in the development of the NBN.

Mandating interoperability certainly shouldn't be contentious: we already have Australian Standards for everything from the manufacture of pet food and the collection of weather information to specific requirements for ice-cream makers, the shape of electrical plugs and the design of toilet seats. Setting a national standard for fibre access can't be that difficult.

Mandating fibre standards is an excellent way to reduce the cost of the NBN while attracting private investment ... Private-sector business cases would be based not on building networks and racing to bind customers to them, but on building networks and maximising all kinds of traffic through those networks.

Although it doesn't reflect a direct investment in NBN Co, building a nationwide confederacy of compatible networks, then filling in any remaining gaps, is an excellent way to reduce the cost of the NBN while attracting the much-discussed private investment that the totally government-dominated model will struggle to find. Private-sector business cases would be based not on building networks and racing to bind customers to them, but on building networks and maximising all kinds of wholesale and retail traffic through those networks. And what better way to maximise traffic — and generate an ongoing revenue stream — than to sell dark or even lit fibre access to NBN Co or other comers?

This model has already worked well for undersea fibre ventures, where capital expenditure is weighed against a share of massive wholesale traffic revenues. Private peering operators have tried similar models domestically with varying degrees of success. However, government sanction, backed by promises of massive volumes of wholesale traffic, could be the thing the private sector needs to start funding Brisbane-like fibre roll-outs in other areas where it makes commercial sense. Everywhere else, NBN Co can intervene. By sparing the company the threat of expensive overbuilding, this approach could help the Labor Government meet its NBN coverage objectives at a substantially lower cost.

What do you think? Will mandated technical standards fuel private investment and boost the NBN's business case? Or is Conroy's push for mandatory NBN interoperability creating a disincentive for infrastructure investment?

As large as the US mainland but with a smaller population than Texas, Australia relies on ICT innovation to maintain its position as a first-world democracy and a role model for the developing Asia-Pacific region. Award-winning journalist David Braue has covered Australia’s IT and telecoms sectors since 1995 – and he’s as quick to draw le...
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